In re Terry

• Decision Date: 24 February 2014
• Docket Number: No. 13–14780–mdc.,13–14780–mdc.
• Citation: 505 B.R. 660
• Parties: In re Otis W. TERRY, Jr., Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

505 B.R. 660

In re Otis W. TERRY, Jr., Debtor.

No. 13–14780–mdc.

United States Bankruptcy Court,

E.D. Pennsylvania.

Feb. 24, 2014.

William C. Miller, Philadelphia, PA, Chapter 13 Trustee.

Jane P. Nylund, Philadelphia Legal Assistance, Philadelphia, PA, Irwin Lee Trauss, Philadelphia Legal Services, Philadelphia, PA, for Debtor.

Memorandum

MAGDELINE D. COLEMAN, Bankruptcy Judge.

INTRODUCTION

On October 31, 2013, this Court held a hearing (the “Hearing”) to address the Motion for Relief from the Automatic Stay dated October 7, 2013 (the “Motion”), filed by 2013 N. 16th St., LLC (the “Movant”). The Motion seeks relief from the automatic stay to permit it to pursue its state court remedies with regard to real property located at 7128 Mount Airy Place, Philadelphia, Pennsylvania (the “Property”). At the Hearing, both the Movant and Otis W. Terry, Jr. (the “Debtor”) appeared. During argument, the parties agreed that none of the relevant facts are in dispute. The parties' only disagreement lies with whether the Debtor's attempt to redeem the Property is legally sufficient.

Pursuant to the Debtor's Chapter 13 Plan filed with this Court as of June 13, 2013 (the “Plan”), the Debtor proposes to pay the Movant a total of $135,000 consisting of a lump sum payment of $60,000 to be made on or before May 1, 2014, and a series of sixty monthly payments of $1,250 (the “Redemption Amount”). The Movant challenges the Debtor's right to retain his interest in the Property by paying the Redemption Amount over the course of the Plan period. The Movant argues that the Debtor's interest in the Property expired as of September 12, 2013, when the Debtor failed to tender the full amount of the Redemption Amount in accordance with 53 P.S. § 7293, et seq. The parties conceded that the Movant would be entitled to relief only if the Debtor was not entitled to pay over the course of his plan the amount to redeem his interest in the Property.

To assist this Court's determination of a purely legal issue, the parties agreed to file post-Hearing memoranda addressing the issue. Having received the parties' post-hearing memoranda and given full consideration to the arguments contained therein, this Court is now prepared to issue its decision.

Factual Background

On September 19, 2012, the Philadelphia Sheriff's Office conducted a tax sale to collect unpaid taxes due on the Property (the “Sheriff's Sale”). The Movant was the successful bidder and paid $120,000 to the Philadelphia Sheriff's Office. On December 11, 2012, the Philadelphia Sheriff's Office signed and delivered a deed evidencing the transfer of the Property to the Movant (the “Tax Deed”). The Tax Deed evidencing the sale was recorded on January 5, 2013. Shortly thereafter, the Movant filed in the Philadelphia Court of Common Pleas a Complaint in Ejectment dated January 10, 2013, Case ID: 130100821 (the “Ejectment Action”), against the Debtor and Patricia Terry, the Debtor's sister and co-owner of the Property. After no answer was filed in the Ejectment Action, the Movant filed a Praecipe for Entry of Default Judgment dated April 2, 2013. On the next day, April 3, 2013, the Movant filed a Praecipe for Writ of Possession. On May 30, 2013 (the “Petition Date”), the Debtor filed for Chapter 13 relief thereby staying the Ejectment Action.

On June 4, 2013, the Movant filed its first Motion for Relief from Stay (the “First Motion”) seeking relief from the automatic stay to permit the continuation of the Ejectment Action. After a hearing on the First Motion, this Court took under advisement the issue of whether the Debtor held an unexpired right of redemption under Pennsylvania law pursuant to 53 P.S. § 7293 (the “Right of Redemption”). On August 14, 2013, this Court entered an Order (the “Original Order”) addressing whether the Debtor retained any interest in the Property. Relying on the analysis of Bankruptcy Judge Judith K. Fitzgerald contained in In re Hammond, 420 B.R. 633 (Bankr.W.D.Pa.2009), this Court determined that the Debtor held an unexpired right to redeem the Property, Original Order, ¶ 1, and scheduled a continued hearing for September 19, 2013, to determine the remaining issues presented by the First Motion. At the continued hearing, this Court denied the First Motion on the basis of this Court's determination that the Debtor's right to redeem had not expired and therefore the Movant, based upon the arguments raised by the First Motion, was not entitled to relief.

Two days prior to the September 19 hearing, the Movant filed a Memorandum dated September 17, 2013, wherein the Movant argued, for the first time, that it was entitled to relief because the Debtor was required to exercise its right of redemption, including the payment in full of any amount due pursuant to 53 P.S. § 7293 (the “Redemption Amount”) on or before September 12, 2013. At the continued hearing, the Movant reiterated its argument that the Bankruptcy Code does not allow the Debtor to stretch the payment of the Redemption Amount over the entirety of the Plan's period. Because the Movant had not raised this argument in support of its First Motion and the Debtor had not been afforded an opportunity to address the issue, this Court refused to consider it. See, e.g., In re PRS Ins. Group, Inc., 335 B.R. 77, 80 (Bankr.D.Del.2005) (recognizing a decision is invalid if it is premised upon a determination outside of the adversarial issues presented by the parties). After dismissal of the First Motion, the Movant then filed the instant Motion asserting this argument as a basis for relief.

Discussion

In support of its Motion, the Movant filed a Memorandum of Law dated December 5, 2013, wherein the Movant argued that the Debtor's § 1322 rights are inapplicable to the payment of the Redemption Amount and therefore he may not stretch the payment over the Plan period. The Movant argues that § 1322(b) is not applicable because the Movant is not the holder of a claim. The Movant cites no legal authority in support of its argument that the Debtor owed no obligation to the Movant. Despite the shortcomings of the Movant's briefing, this Court has considered the Movant's position and declines to adopt it.

The Debtor's Chapter 13 estate, as defined by § 541(a) of the Bankruptcy Code, consists of “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a) (emphasis added). Therefore, any interests in the Property that the Debtor retained after the Sheriff's Sale and as of the Petition Date, inured to the benefit of his Chapter 13 estate. The scope and nature of a debtor's interests are determined according to applicable state law. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979); In re O'Dowd, 233 F.3d 197, 202 (3d Cir.2000); In re Greenly, 481 B.R. 299, 308 (Bankr.E.D.Pa.2012). Once a debtor's state-law interests are delineated, a debtor may turn to the Bankruptcy Code to evaluate what may be done with those rights to enable her rehabilitation. See, e.g., BFP v. Resolution Trust Corp., 511 U.S. 531 543, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994) (recognizing Congress may override state law in the bankruptcy context); In re Allentown Ambassadors, Inc., 361 B.R. 422, 426 n. 32 (Bankr.E.D.Pa.2007) (recognizing that debtor's interests as determined under applicable nonbankruptcy law may be “overridden” by specific provisions of the Bankruptcy Code); In re Hollins, 150 B.R. 53, 54 (Bankr.D.Or.1993) (holding that § 1322(b)(3) preempts Oregon's state law redemption procedures).

Under Pennsylvania law, it is well-settled law that the purchaser at a sheriff's tax sale does not acquire the entirety of an owner's interests. In re Hammond, 420 B.R. 633, 635 (Bankr.W.D.Pa.2009); Hess v. Potts, 32 Pa. 407 (1859). Rather, the purchaser acquires a defeasible title. Hammond, 420 B.R. at 635;Hess, 32 Pa. at 407. The purchaser does not obtain an absolute title to the property until the passage of the redemption period. Hammond, 420 B.R. at 635;Shalemiller v. McCarty, 55 Pa. 186, 188 (1867); City of Philadelphia v. Miller, 182 Pa.Super. 239, 126 A.2d 812, 815 (1956). In the interim, the owner retains substantial interests in the property, including but not limited to, the right to possession. As this Court has previously determined, those interests included the Debtor's unexpired right of redemption. Original Order, ¶ 1. The question then turns on what, under applicable nonbankruptcy law, the Debtor may do with this right and whether application of the Bankruptcy Code affords the Debtor additional remedies.

The Debtor maintains that he exercised his right of redemption prior to the expiration of the redemption period by filing his Plan on June 13, 2013. Pursuant to the Plan and to the extent the Movant's interest in the Property is allowed by this Court, the Debtor proposes to pay to the Movant a total of $135,000 (the “Redemption Amount”). In relevant part, the Plan provides:

9. The debtor shall be paying off 100% of 2013 N 16th Street LLC's allowed secured claim, to the extent said claim is not void, avoided, or subject to avoidance, and debtor shall be required to make no payments to 2013 N 16th Street LLC other than the following.

Commencing on the effective date of the plan:

a. Debtor shall pay directly to 2013 N 16th Street LLC, or such agent or servicer as it designates, equal monthly payments of $1250.00 over the sixty (60) months of the plan.

b. Debtor shall pay directly to 2013 N 16th Street LLC, or such agent or servicer as it designates, a lump sum payment of $60,000.00 from the reimbursement check debtor will receive from the Sheriff's Office for excess proceeds from the sale of the property. Debtor shall make this lump sum payment of $60,000.00 to 2013 N 16th Street LLC on or before May 1, 2014.

Plan, ¶ 9.

Pennsylvania law provides that an owner of property sold at a sheriff's sale may “redeem the [property] at any time within nine months from...